Charting jobs & unemployment

By Kurt Brouwer

The unemployment situation is clearly bad. Most would agree on that. The rate of progress in creating new jobs is also dismal. Most would agree on that. Once you go beyond those two points, the word count and the spin go up exponentially. So, I decided to give you a series of charts on jobs and unemployment so you could see for yourself.

Recessions & payroll job loses

The first chart shows the percent of job losses for all recessions since World War II, with 1948 being the first and 2007 being the current one. The quick takeaway from this is that, in the past, recessions had one of two trends. Either they were steep on the way down and on the way back up in terms of job losses (see 1948 – blue line). Or, they were shallow on the way down and back up (see 2001 – brown line).

Unfortunately, in this recession we have managed to combine the worst of both worlds — a steep loss of jobs with a very gradual bottoming out and recovery (see 2007 – red line).

The next chart demonstrates what has happened to the civilian employment population ratio. It was pretty stable at about 63% for years and now it has plummeted. Currently, between 58% – 59% of working age civilians are working.

Speaking of the economic stimulus program, it clearly did not get many construction workers back to work. How did it do in terms of its own projections.

This next chart takes as a starting point, the projection made by two White House economists, Christina Romer and Jared Bernstein, in January 2009. The projection was used to sell the $787 billion American Recovery and Reinvestment Act, which was being debated then. The two economists bravely predicted what would happen with unemployment assuming economic stimulus passed (red line) or did not pass (green line).

The blue line, of course shows what actually happened. Unfortunately, unemployment is at 9.6% now, not less than 7% as the White House economists predicted it would be by now. Even at that, 9.6% is misleading. The only reason unemployment is not higher is that the government does not count millions of newly-discouraged workers as being unemployed.

In terms of the benefit of the economic stimulus program, we are told these would have been much worse without it. Maybe so, although trying to prove what would have happened without it is very difficult. We are also told that the American Recovery & Reinvestment Act of 2009 ‘saved or created’ 3 million jobs. Determining whether or not a job has been ‘saved’ is essentially impossible, but let’s not get into that.

If we run the numbers we find that the expenditure per job saved or created was over $262,000 ($787 billion divided by 3 million jobs). I don’t believe 3 million jobs were saved or created, but even if I did, the cost is way, way too high. And, $787 billion is borrowed money so we will be paying interest on that for decades. The total cost is north of one trillion dollars.

Weekly jobless claims flatlining

This next chart shows what has happened with initial jobless claims for unemployment insurance over the past few years. It was pretty steady at a bit over 300,000 new weekly claims for quite a while and then began going up as the recession hit. The peak was north of 600,000 new claims per week and then it began to fall. That is all pretty normal. Unfortunately, the decline has now stopped and new jobless claims are leveled off at about 475,000. In order to get unemployment down in a meaningful way this number has to level off at about 300,000. Unfortunately, that is not happening.

The next chart illustrates the number of workers who can only find part-time work even though they would like full-time work. This chart shows that we have probably peaked, but again we have peaked at a very high level and it will take quite a while for this to come. Also, as business conditions improve, these folks will begin working full-time, but that won’t be considered a new job. In other words, there is a lot of slack in the system and employers almost certainly will just give these folks more hours before they hire a new employee.

Source: Calculated Risk

331,000 full-time workers got cut to part-time last month

To put the most recent data to work, in the jobs report that was just released there was a very unsettling piece of data from the Bureau of Labor Statistics report [emphasis added]:

…The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 331,000 over the month to 8.9 million. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job…

This means that 331,000 people lost full-time jobs and are now working part-time, not because they want to do so, but rather because their employer had to cut back.

Those who are trying to spin this most recent jobs report as better than expected will probably focus on the fact that the private sector added 67,000 jobs. If you took the number of 331,000 people who are working less and assumed these folks lost a third of their hours, that would be the equivalent of the loss of 110,000 jobs.

Wall Street Journal interactive chart

This final chart is a static image of the most recent month from an interactive chart (go here to see the interactive version) that demonstrates job losses and gains over the length of this recession. There have been a couple of industries that have gained jobs — health services and education — however, all others have lost jobs.

The industries that have been hurt the most are construction and manufacturing (green), followed by retail and then business services (blue). In case you were wondering, the little yellow bar is government. It has actually grown over time. Imagine that.

Overall, we have lost 7,640,100 jobs since January 2008, when the recession and the chart time line began.

What’s next?

I believe we will see gradual improvement in employment, but I am not looking for anything dramatic. First, the economy is actually slowing right now and that means businesses are not eager to hire. Second, when things do improve, businesses will most likely bring their part-timers up to full-time as a first step. This won’t count as a new job though. Third, as conditions improve, more workers who are not even looking for work will begin looking and thus will begin being counted as unemployed. Right now, those not looking for work are not counted as being unemployed.

We will get through this, but I’m afraid it is going to take years, not months. I hope I’m wrong.

About Fundmastery Blog

Kurt Brouwer is a fee-only financial advisor with three decades of experience. He is the chairman and co-founder of Brouwer & Janachowski, LLC. Kurt has written books, articles and hundreds of blog posts on mutual funds, ETFs and other investment topics. E-mail: kurt.brouwer *at* gmail.com.